VALLEY CENTER MUNICIPAL WATER DISTRICT
Regular Board Meeting
Monday, April 3, 2006
Time: 2:00 P.M.
Place: Board Room
29300 Valley Center Road
Valley Center, CA 92082
The Valley Center Municipal Water District Board of Directors’ meeting was called to order by President Broomell at 2:00 P.M.
Board members present were: Directors Broomell, Polito, Aleshire and Haskell. Director Stone was absent. Staff members present were: General Manager Arant, General Counsel Cowett, Director of Finance Jeffrey, District Engineer Grabbe, Director of Operations Hoyle, Board Secretary Stetson and IT Specialist Rivard. Spectators present were: Mr. Joe Gallagher and Mr. Dave Ross, Roadrunner Newspaper.
APPROVAL OF AGENDA
Upon motion by Polito, seconded by Haskell and unanimously carried, the agenda was revised to move agenda item number 9, review of the proposed debt policy, to the first item under the Action Agenda section.
1. Upon motion by Aleshire, seconded by Polito and unanimously carried, the following consent calendar items were approved:
• Minutes of the Board meeting held March 20, 2006
• Audit demand check numbers 108087 through 108267
• Treasurer’s Report and Financial Statement for the period ended February 28, 2006
2. Review of the District’s Proposed Debt Policy:
Director of Finance Jeffrey explained that the District’s Administrative Code contains a brief overview of the District’s policy on debt issuance in Section 50.2(c). In response to the impending debt financing anticipated next year and that several proponents of developments have inquired about the District’s debt financing, a more detailed policy guideline regarding acceptable levels of indebtedness for the District was prepared. As proposed, two sections would be added to the Administrative Code which are: Section 50.3, Debt Policy and Section 50.4, Land-Secured Financing Policy. The proposed policies were reviewed as summarized below:
• Debt will be issued only for one-time capital improvement projects and not for recurring operating costs.
• The District will not pledge its credit for special assessment bonds for developers.
• Debt will not be used if current revenues and reserves are sufficient.
• Types of debt that will be considered are: Enterprise-Revenue bonds, Lease-Revenue bonds, Certificates of Participation and special assessment improvement bonds.
• Community Facilities Districts (CFD or Mello-Roos) will not be considered as special assessment bonds are more appropriate for projects the District might assist in financing.
• Debt should not exceed the life of the projects financed.
• District will aim to maintain debt at affordable levels to preserve budgetary flexibility and its credit quality.
• Methods of sales will be recommended with consultation with financial advisors and approval from the Board.
• Principal objective in refunding an outstanding debt issue is to secure a public benefit which may include interest rate savings.
• The District will provide disclosure of information deemed important to purchasers of bonds or other securities.
• Section on capital planning and financial planning integrates the District’s Master Plan into the debt issuance process.
• Authorizes the District Treasurer to invest bond proceeds in accordance with bond covenants.
Land-Secured Financing Policy
• Only water and wastewater facilities that provide a public benefit and will be owned by the District will be financed.
• Improvement Bond Act of 1915 financing will be used. Community facilities districts will not be considered.
• District will not be the lead agency in a joint community facilities agreement but may consider cooperating with other government agencies in their assessment districts.
• The minimum principal amount of any “landowner initiated” land-secured financing shall be $3 million.
• Financing will not exceed 75% of the engineer’s estimate for the water and wastewater facilities project.
• Financing shall be on an acquisition basis only and no proceeds shall be paid or reimbursed until the improvements are completed and in use.
• In evaluating the application for financing and the proposed debt issue, any or all of the following may be required to determine the economic viability of the proposed project:
Market absorption study
Appraisal and Value-to-Lien Ratio
Applicant’s financial information
Land use approvals
Equity participation by applicant and major participants
• The apportionment of a special district assessment lien among the parcels comprising the proposed assessment district shall be based upon the direct and special benefit each parcel receives from the public facilities to be financed.
• Maximum annual payments shall not exceed 1% of the sale price of the property and the total taxes and assessments shall not exceed 2%.
• Bonds shall be issued in accordance with the Improvement Bond Act of 1915 and neither the faith, credit or taxing power of the District shall be pledged to the payment of the bonds.
• Land-Secured financing is to be structured with level debt service with a maximum payment period of 30 years.
• Property owners within assessments districts will be required to provide full and complete disclosure of assessment applicable to the property to prospective purchasers, and full disclosure of the proposed assessment district contained in all advertising of the property and purchase documents.
Mr. Joe Gallagher, President of MSK Development Group, which is the managing member of Live Oak Ranch, stated he has reviewed the draft Debt Policy for the District and will be submitting comments on the proposed policy for consideration.
Comments from the Board and public on the District’s proposed debt policy were requested. The proposed policy will be presented for the Board’s consideration of adoption at a subsequent meeting.
3. Extension of the District’s Strategic Plan Through to Fiscal Year 2007-08 and Proposed Updates:
In conjunction with the adoption of a 2-year budget cycle for Fiscal Years 2006-07 and 2007-08, an extension of the District’s Strategic Plan through to Fiscal Year 2007-08 was proposed.
Updates to the Strategic Plan include elimination of completed items: Corporate Facility Master Plan and Regional Water Supply Alternatives. Two Specific Strategic Plan Goals proposed to be added were:
~ Integrated Water and Wastewater Resource Plan to update the 2002 Water System Master Plan and address the wastewater treatment and wastewater recycling systems in an integrated manner.
~ Improved Integration of the Data Processing and Management Systems of the current data generation and management sub-systems, as well as development of new systems such as work order generation and processing, labor tracking and allocation and system maintenance and modification.
Also, the District’s adopted Code of Ethical Practices was added to the Strategic Plan document. No changes to the Performance Measurement Standards and Organization Values were proposed.
Upon motion by Aleshire, seconded by Haskell and unanimously carried, the District’s Strategic Plan was extended through Fiscal Year 2007-08 with the proposed amendments.
Water Demand Management Program:
General Manager Arant reported that during the summer of 2006, it is expected that there will be periods when peak water demands significantly exceed the existing capacity of the treatment plants serving the San Diego region. In anticipation of this “summer 2006 peak water demand”, the San Diego County Water Authority has been coordinating efforts with Metropolitan Water District and other agencies within the Skinner Treatment Plant’s service area to maximize water supplies during the peak periods. In addition, the Authority has been working with its member agencies that have local supplies and treatment capacity to coordinate and maximize local production during these peak periods.
Intermittent water supply shortages of 4% to 6% are anticipated, depending on weather conditions. In preparation for such water shortages, the San Diego County Water Authority’s water demand management program was reviewed as well as the District’s proposed response program, as follows:
Certified and non-certified agricultural and large landscape/turf irrigators will be advised of the peak water demand period. Beginning in June, an education and awareness program to “Beat the Peak” will be implemented through the media, newsletter and the District’s website. Large agricultural and landscape/turf irrigators may be asked to shift irrigation start dates from the traditionally high demand Mondays.
Level 1 – Demand at 95% of Skinner Treatment Plant’s Capacity
The San Diego County Water Authority will provide advisory notifications to its member agencies. The District will prepare call lists for notification of customers, if required.
Level 2 – Demand at 100% of Skinner Treatment Plant’s Capacity
San Diego County Water Authority will ask for voluntary demand reduction and reallocation of supplies. Local supply and treatment agencies will be requested to take no extra cost measures to increase production. The District’s largest (250) agricultural and landscape/turf irrigators will be contacted via e-mail and direct phone calls to voluntarily reduce water use by 5% for the shortage period.
Level 3 – Demand at 105% of Skinner Treatment Plant’s Capacity
San Diego County Water Authority’s request for voluntary demand reduction and reallocation of supplies will continue. Agencies with local supplies and treatment will be requested to take measures (such as pumping) to increase production and delivery to reduce demands at the Skinner Treatment Plant. District’s action will be to renew request for voluntary conservation of its largest users, and construction users will be advised that their service may be terminated. The education program regarding the insufficient capacity at the Skinner treatment plant and to reduce watering during periods of high temperature will intensify and there will be more prominent messages of potential water shortages placed on the District’s web page and communicated through the electronic sign boards.
Level 4 – Mandatory Demand Reduction
If treated water demands exceed supplies even with requests for voluntary water use reduction and the increased local production, the San Diego County Water Authority will implement equal mandatory flow reductions until demand is balanced by supply. Under the mandatory demand reduction, the District will require its largest irrigation users to reduce usage by a specific percentage or request usage be terminated for a specific period on a strategic or geographical rotational basis. Customers not complying with the requests will have their flow restricted or meters locked off. Other accounts (small agricultural, landscape/turf irrigation, residential and commercial) will be monitored for compliance with general water conservation guidelines. Construction water will be permitted only from the water manifold at Lake Turner. The messages on the District’s web page and electronic sign boards will be modified to demand water usage reduction from all customer classes. If these measures are not sufficient to bring balance between demand and the available supply, more aggressive measures will be implemented to reduce demands such as those utilized during the aqueduct shutdown in February.
General Manager Arant clarified that the Skinner Module 7 improvements at the treatment plant will increase the facility’s treatment capacity by 110 million gallons per day which is expected to be on line by the summer of 2007. In addition, the San Diego County Water Authority’s Twin Oaks Treatment Plant is scheduled to be operational by April of 2008, and will have the capacity to treat 100 million gallons per day. These projects should alleviate peak demand conditions beginning in 2007. The District’s Summer 2006 Peak Water Demand Management Program will be presented for further discussion and consideration of adoption at a future board meeting.
5. Water Loss Report for 2005:
The District’s Strategic Plan has a performance measurement standard that water loss be less than 5% per calendar year. For calendar year 2005, the unaccounted water loss was 5.6% and the average loss for the last four calendar years was 5.1%. In calendar year 2004, the unaccounted water loss had been 5.9%. Procedures continue to be implemented to further reduce water losses such as the exchange of the top 150 large agricultural meters, which was undertaken in 2005, and continuing the exchange program along with exchanging the high use ¾” and 1” meters for all customer classes. Water loss reductions from these measures should be realized for Fiscal Year 2005-06 and calendar year 2006. Also, an additional staff person for the Construction & Maintenance Division will be proposed for the upcoming budget to permit scheduling of more staff time for leak detection and large meter exchanges.
Discussion ensued regarding known losses such as water used to combat a fire and for flushing out a line for water quality purposes. Water lost when a fire hydrant is broken is considered a known water loss, though the water value is calculated and the District seeks reimbursement. To better clarify the District’s Performance Measurement Standard in its Strategic Plan document regarding water loss, it will be modified to read “Less than 5% of unknown losses in a calendar year”.
6. Review of Budget Policy:
The District’s budget policies as set forth in Section 50.2 of the Administrative Code were presented for the Board’s review. These policies are referred to during preparation of the budgets and financial operations of the District. The policies address: Reserves, Fees and Charges, Debt, Use of One-time and Unpredictable Revenues, Balancing the Operating Budget, Revenue Diversification and Contingencies.
Per consensus of the Board, the budget policies for the District as written and codified in Section 50.2 of the Administrative Code were approved with no change.
7. Review of the District’s Investment Policy:
Government Code Section 53846(a)(2) and the District’s Administrative Code Section 50.3 require that the Board review the District’s investment policy to confirm its appropriateness to the District’s operation. As adopted by the Board, the District’s investment policy is conservative in that the types of investments allowed are limited to those that carry the least risk while continuing to pay at least a market rate of return. Primary goals of the policy are: preservation of capital, followed by maintaining liquidity and then yield on investments. Also, the Government Code requires that the Board annually confirm the authority delegated to the treasurer of the local agency to invest and reinvest District funds. The Board has delegated the authority to invest and reinvest District funds to the Treasurer of the District, who is Bill Jeffrey, Director of Finance.
A change to Section 50.1(g), Authorized Investments, was recommended to include participation in a joint powers authority that can invest in a diversified portfolio for the benefit of its members, as now permitted per the Government Code.
The District’s investment results for 2005 were reviewed as is outlined on the attached Exhibit A. Director of Finance Jeffrey stated that the one-year treasury comparative within the District’s monthly Treasurer’s Report assumes that all investments are bought at one point in time. The benchmark for January in the Report is the yield of one-year treasury bonds sold on January 31. As such, the yields on the monthly Treasurer’s Report only show a comparison of the District’s portfolio to the benchmarks at the end of that month. A 12-month rolling average is also calculated using the monthly treasury yields and value of investments for the last 12 months. The 12-month rolling average more accurately reflects a real portfolio whereby 1/12th of the portfolio matures and is reinvested each month. The District’s Strategic Plan’s Performance Measurement Standard seeks an “average rate of return on one-year U.S. Treasury Bonds”. Director of Finance Jeffrey explained that this weighted average is calculated using each end-of-month Treasury bond yield weighted by the book value of the investment at that time. The average District yield on its investments for FY 2005-06 was 2.88% which is 0.83% below its benchmark of the average one-year Treasury bond yield (3.71%). However, the District’s average yield on its investments was higher than the 12-month rolling Treasury bond yield of 2.84%. Director of Finance Jeffrey was directed to evaluate alternative performance measurement standard benchmarks for the District’s investments. Review of the District’s investment policy, including consideration of the proposed amendment to the District’s Statement of Investment Policy to add a joint powers authority as a permitted investment, renewal of the authority to the Treasurer to invest and reinvest District funds, and alternative benchmarks for performance measurement of the District’s investments was deferred to a future Board meeting.
8. Report on the Treated Water Shutdown of
February 4 – 16, 2006
Director of Operations Hoyle provided a report on the District’s activities in preparation for and during the treated water aqueduct shutdown of February 4-16, 2006.
Pre-shutdown preparations including notification of the prohibition of outside water usage during the shutdown which was accomplished through a special mailer, message on the bills, phone contact with the top 200 growers, nurseries and the golf course accounts. In addition, there were two stories in the Roadrunner Newspaper of the pending shutdown and water use restrictions, and the message was further communicated through message boards, door hangers, posting on the District’s web site and e-mails to agricultural customers. The Field Department’s preparations included adjusting the reservoir altitude valves, checking bypass valves, ensuring pump availability, purchase of extra fuel, set up of the non-potable water stations at Lake Turner and maps for patrolling for compliance.
During the shutdown period, the District’s Emergency Operations Center was activated and staff worked extended hours including weekends to continue the message of water use restrictions and to assist customers as needed, such as nurseries requesting limited variances. The District’s service area was patrolled beyond the normal workday hours beginning at 5:00 a.m. through to 11:00 p.m. to achieve compliance. Dedicated irrigation meters were turned off and the message boards and District’s web site were updated. The news media was contacted which resulted in stories to reiterate the importance of stopping outside water usage during the shutdown period being broadcast on television and printed in the local newspapers.
Initially, during the shutdown period, some residential areas were not complying with the prohibition on outside watering. As a result, 1,600 customers were contacted and, if needed, a follow-up call was placed. There was continuous monitoring of water levels with workers immediately dispatched if a reservoir experienced a sudden water level drop. Staff worked with nurseries and growers to coordinate and grant limited waivers to the water prohibitions in response to customers’ needs.
Customers were informed of the end of the shutdown period and the rescinding of the prohibition on outside watering via the message boards, web page and phone messages. A letter was mailed to the agricultural customers and nursery accounts thanking them for their cooperation during the shutdown period. Procedural improvements that will be pursued for future shutdown periods are: computer program for tracking of repeat violators, availability of reverse 911 system to increase calling efficiency, signs to be posted at the entrance of home developments, securing additional message boards, shutdown notice in the Hidden Meadows community
newspaper, pre-hang door hangers in residential developments and automated meter reading technology in development areas. Director of Operations Hoyle reported that another aqueduct shutdown is scheduled from November 27 to December 7, 2006.
9. Review of Miscellaneous Informational Items:
General Manager Arant stated that he will be recommending the District take the position of oppose on two pending bills. AB 2943 (Salinas) is sponsored by the fire associations which proposes to prohibit charging for the water meters serving residential fire sprinkler systems. A conference call is being held with ACWA and the bill’s proponents in which it will be pointed out that there are costs to support meters for residential fire sprinklers and it would be inappropriate for the customers without such systems to be subsidizing their operation. SB 1317 (Torlakson) sponsored by Southern California Edison, which, as written, would transfer a portion of the 1% property tax from an enterprise special district to a city that sites a power plant within its boundary. The Board unanimously approved the position of oppose regarding the proposed AB 2943 and SB 1317.
The first PBS series on California Water, Climate Change, was aired last weekend in Los Angeles. This segment will be broadcast on the San Diego PBS channel on April 17th followed by the segment, The Delta, on April 22nd. General Manager Arant reported that an additional payment of $1,000 had been processed for the segment on water transfers of which the District is a major contributor. This additional funding was also forwarded by the other major contributors to the Water Transfer segment (Vallecitos Water District, Rincon del Diablo, and Olivenhain Municipal Water District). Additional funds from the Water Transfer segment major contributors was necessary when the San Diego County Water Authority transferred its funds in order to be eligible to be interviewed for the segment per compliance with PBS’s policy. The California Water segments will be promoted through ads in the local newspaper, and air time on the local cable stations will be solicited.
GENERAL COUNSEL’S AGENDA
10. Resolution Approving Increase in Legal Fees from Best, Best & Krieger:
The Board had directed staff to annually place on the agenda consideration of an increase in legal services fees based on the Consumer Price Index change, with any change approved to become effective July 1st. The CPI for the San Diego area for the year ending December 31, 2005, increased 4%. The General Manager noted that a 4% increase in the legal fees is comparable to legal fees paid by other agencies and that the legal services provided by Best, Best & Krieger continues to be outstanding.
Upon motion by Aleshire, seconded by Haskell and unanimously carried, the following resolution, entitled:
RESOLUTION NO. 2006-14
RESOLUTION OF THE BOARD OF DIRECTORS OF
THE VALLEY CENTER MUNICIPAL WATER DISTRICT
ADOPTING AN AMENDMENT TO THE AGREEMENT
WITH BEST, BEST & KRIEGER, LLP, TO APPROVE
AN INCREASE IN THE FEES FOR LEGAL SERVICES
was adopted by the following vote, to wit:
AYES: Directors Broomell, Polito, Aleshire and Haskell
ABSENT: Director Stone
11. Energy Settlement Lawsuit:
General Counsel Cowett reported that a hearing will be held on April 28th which should conclude the Reliant settlement for the Wholesale Electricity Litigation of which the District’s share will be approximately $270,000.
BOARD OF DIRECTORS’ AGENDA
12. Meetings Report:
The District’s Retrospective Premium Adjustment Stabilization status report from the ACWA/JPIA was reviewed by Director Aleshire. The District’s claims were less than the average for all members of the JPIA.
Director Aleshire stated that the ACWA/JPIA will be changing auditors. Solicitation of proposals from different auditing firms is underway. A strategic planning meeting is scheduled for June at which time expense reimbursements for members of the Executive Committee will be discussed.
The Caves initiative, The Safe Drinking Water, Water Quality and Supply, Flood Control, River and Coastal Protection Bond Act, apparently has qualified for the November 2006 ballot. The initiative provides funds for water improvements but does not contain funds for any surface storage. The ACWA Board of Directors has not yet voted on its position concerning this initiative. General Manager Arant stated that he will suggest to ACWA that discussion on the water industry’s positions on additional surface storage, Delta levee improvements and a through delta conveyance facility be a program or debate scheduled for a future ACWA Conference. In this manner, the water industry could develop a unified position and message of support for water improvements.
13. Upon motion by Aleshire, seconded by Polito and unanimously carried, the meeting was adjourned at